PART II. OTHER INFORMATION
In addition to the risk factors set forth in Part I, Item 1A of the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange
Commission on March 31, 2011, our business, financial condition and operating results could be
adversely affected by any or all of the following factors.
General Risks Related to Our Business
We operate with significant levels of indebtedness and are required to comply with certain
financial and non-financial covenants; we are required to maintain a minimum level of subordinated
loans to our subsidiary Supplies Distributors; and we have guaranteed certain indebtedness and
obligations of our subsidiaries Supplies Distributors and Retail Connect.
As of September 30, 2011, our total credit facilities outstanding, including debt, capital
lease obligations and our vendor accounts payable related to financing of IPS product inventory,
was approximately $54.0 million. Certain of the credit facilities have maturity dates in calendar
year 2012 or beyond, but are classified as current liabilities in our consolidated financial
statements given the underlying nature of the credit facility. We cannot provide assurance that
our credit facilities will be renewed by the lending parties. Additionally, these credit facilities
include both financial and non-financial covenants, many of which also include cross default
provisions applicable to other agreements. These covenants also restrict our ability to transfer
funds among our various subsidiaries, which may adversely affect the ability of our subsidiaries to
operate their businesses or comply with their respective loan covenants. We cannot provide
assurance that we will be able to maintain compliance with these covenants. Any non-renewal or any
default under any of our credit facilities would have a material adverse impact upon our business
and financial condition. In addition we have provided $3.5 million of subordinated indebtedness to
Supplies Distributors as of September 30, 2011. The maximum level of this subordinated indebtedness
to Supplies Distributors that may be provided without approval from our lenders is $5.0 million.
The restrictions on increasing this amount without lender approval may limit our ability to comply
with certain loan covenants or further grow and develop Supplies Distributors business. We have
guaranteed most of the indebtedness of Supplies Distributors. Furthermore, we are obligated to
repay any over-advance made to Supplies Distributors by its lenders to the extent Supplies
Distributors is unable to do so. We have also guaranteed Retail Connects $7.5 million credit line,
as well as certain of its vendor trade payables.
Specific Risks Related to Our Business Process Outsourcing Business
Our business is subject to the risk of customer and supplier concentration.
For the nine months ended September 30, 2011, two clients represented approximately 30% of our
total service fee revenue (excluding pass-through revenue) and approximately 13% of our total
consolidated revenue. The loss of either of these clients may have a material adverse effect upon
our business and financial condition.
The majority of our Supplies Distributors product revenue is generated by sales of product
purchased under master distributor agreements with IPS. These agreements are terminable at will
and no assurance can be given that IPS will continue the master distributor agreements with
Supplies Distributors. Supplies Distributors does not have its own sales force and relies upon
IPSs sales force and product demand generation activities for its sale of IPS product.
Discontinuance of such activities would have a material adverse effect on Supplies Distributors
business and our overall financial condition.
Sales by Supplies Distributors to two customers in the aggregate accounted for approximately
25% of Supplies Distributors total product revenue for the nine months ended September 30, 2011,
(15% of our consolidated net revenues in the nine month period ended September 30, 2011). The loss
of any one or